Offshore & Marine Sector

Kim Eng on 13 Feb 2014

Results Preview Round-up
We are above consensus for Sembcorp Marine and anticipate a sequential upturn in operating margin to 12.0% in 4Q13E. Small-to-mid-cap offshore oil and gas names could see strong double-digit YoY net profit growth but commercial shipbuilders (Cosco and Yangzijiang) could post YoY dips. Earnings surprises, if any, would come from Mermaid Maritime and Nam Cheong.

What’s Our View
Good sanity check. Earnings reports by the sector are a reflection of the execution of orders secured in the past. Although a good sanity check, we believe they should be read in conjunction with future prospects.

2014 investment themes. Our three key investment themes for 2014 are premised on: (1) a sustained rig building momentum, (2) cyclical rebound in OSV demand, and (3) lacklustre commercial shipbuilding orders for Chinese shipyards. We also like companies with good structural growth prospects, namely, Ezion and Mermaid. So far, the OSV recovery theme appears to pan out well with new vessel orders for Nam Cheong and Vard since the beginning of the year. The OSV recovery theme looks to be playing out well with several new vessel orders seen for Nam Cheong and Vard since the beginning of the year.

Maintain Overweight. We reiterate our Overweight call on the sector, with Sembcorp Marine, Ezion, Mermaid and Nam Cheong our top 2014 BUYs. For the last two, we would recommend buying ahead of results release on possible positive surprises.